Most 10-year bond yields in the euro zone were lower in
early trade, with Germany's 10-year benchmark bond yield
reaching two-week lows against a backdrop of risk aversion.

But in regional bond markets, the spotlight remained on
Italy.

Contrasting comments by government officials are leading to
swings in Italian yields as investors try to assess whether the
country's 2019 budget will clash with European Union rules on
fiscal discipline.

Italy's anti-establishment coalition government, which took
office in June, has ambitious spending plans that have raised
concerns on financial markets.

Italian Prime Minister Giuseppe Conte soothed investor
concerns on Wednesday, saying that Italy would defend its
interest but not be "foolish" in its demands.

His remarks pushed Italian bond yields down. But the move
was reversed after Deputy Prime Minister Luigi Di Maio told
Bloomberg News that he was ready to repeat in the budget talks
the tough tactics used to win concessions from the EU on
migration.

"The to and fro of the Italian budget continues to see
swings and roundabouts in markets as we edge closer to finding
out if the government will be spending money in an id-like
fashion or not in search of the pleasure principle," analysts at
Rabobank said in a note.

Italian bond yields rose around 4 basis points across the
curve on Thursday. The 10-year benchmark bond reached 2.9
percent, up from the week's lows of 2.82 percent
recorded on Wednesday.

That left the Italian/German 10-year bond yield gap at
around 252 basis points, about 10 bps wider than levels touched
on Wednesday.

Global risk aversion helped fuel demand for safe-haven bonds
in the euro area. The Turkish lira and Russian rouble came under
pressure amid concerns of escalating tensions with the U.S.
while stock markets in Europe opened broadly lower

Threats to global growth are growing as the risk of
protectionism and higher U.S. tariffs sap confidence, the
European Central Bank said in a regular economic bulletin on
Thursday.

Also in focus for euro zone bond investors is the auction of
30-year U.S. Treasury bonds, following the successful sale of
$26 billion 10-year debt on Wednesday.